International | Aug 18 2008
By Chris Shaw
Despite the impact of the global credit crunch and the concurrent slowing in the US economy, DBS notes exports from Asia have actually increased since August of last year, particularly exports from China. While this implies the region has less to fear from the recent economic downturn, the question remains: is such performance sustainable and if not , which countries will be hit hardest if growth slows?
In the group’s view, it will be difficult to maintain the trend of rising exports as the US economy continues to struggle and other major economies, such as Europe and Japan, show signs of slowing. At some point, there will be a slowing in Asian economic growth.
It may take some time to flow through, given Chinese growth remains high in historical terms and the country is now a more important market for Asian exporters than is the US. But given there will eventually be an impact, the question, in the group’s view is: Which countries are most exposed to such an outcome?
To gain a better perspective of what might happen, DBS has gone back to the last major Asian export contraction of 2000/01 to see how the various economies fared then. The simple answer is; the smaller, more export-dependent economies in the region, such as Malaysia, Singapore and Hong Kong were hardest hit, while the larger, less export-dependent nations such as China, India and Indonesia were not hurt so badly.
Carrying such an analysis forward suggests a similar outcome this time around, which by itself is hardly surprising, but there are some important points from the group’s analysis. The first is the small impact on Chinese growth from a slowing US economy, given the importance exports appear to play in driving the Chinese economy.
The reason, in the group’s view, is because everything is relevant They explain that while exports are very important to the Chinese economy, the size of its economy overall means domestic demand is a far more important driver, accounting for around 80-85% of growth. In contrast, since 2005 domestic demand has accounted for around 60% of growth in the US.
The second point of interest from the group’s analysis is the fact that region’s sensitivity to exports is actually lower than
expected, with the impact from a slowing in exports less important than is the case in the major economies of the US, Europe and Japan.
On DBS’s analysis, there are three other reasons the impact on Asia this time around will be less pronounced than was the case at the start of the decade. The first is the previous downturn was closely related to the technology sector and this time it is related to a collapse in the US housing sector and so should have less of an impact on import demand.
Another factor different this time around is that domestic demand is far healthier than was the case in 2000/01. Back then growth was almost entirely export driven, but this time around Asian economies are in far better shape. Finally, DBS makes the point Asia as a region has around 60% more mass than was the case eight years ago. This means there is simply a greater dollar value of domestic demand and this demand is allowing Asia to generate its own growth rather than relying on the US as a driving force.
The figures support such an outlook, with Asian 8 US dollar export growth almost tripling since August of last year. Export growth has been accelerating in every Asian country except China over that period. An important takeaway is that this growth has not been from a low level, but from what was already above average levels when compared to exports over the past 20 years.
The obvious candidate for what has helped Asian exports has been the weaker US dollar, which has fallen 12% in trade weighted terms since the credit crisis began. But as DBS points out it hasn’t been all down to currency movements, as using a basket of currencies, rather than just the US dollar as a measure, still shows an acceleration in exports overall.
This means there is another aspect in play, this aspect being the impact of Chinese demand on rest-of-Asia exports. As China’s export growth to the US is slowing, it suggests much of Asia’s exports to China are feeding final demand in China rather than simply being exported to meet final demand in the US.
This leads the group to suggest a slowdown in the US is gradually becoming less of an issue for the health of Asian economies. While it doesn’t mean there will be no growth impact on Asia from the weakening of the world’s other major economies, it is China that is the key.
